The discussion at the AFB level on the annual Performance Report is still ongoing.
Though, the AF has adopted the template16 to be used by the Implementing Entities (IE) for the PPR, the AF has requested at its 16th meeting the secretariat to develop a review process of the project performance reports (PPRs) and to establish a set of criteria for clearing PPRs. The template contains eight sections that encompasses questions related to Basic Data (section 1) such as summary of milestones achieved to Qualitative Questions and Lesson Learned (section 8), which are open ended questions on adaptive manage-ment and measure taken. Each section is scored. The score is not bound with the perform-ance of the project itself, but whether it meets the report standard of the AF.
The PPR is submitted by the IE on annual and rolling basis – some projects may need to report more than once a year – from the project inception or launch until it completion.
The PPR is an important document that accompanies the implementation of project funded by the AF by providing essential information on the implementation progress toward defined outputs and outcomes, the adequacy of funding's disbursement and achievement of key milestone.
For this meeting it is expected that the EFC recommends to the AF to approve the review process by the Secretariat of the PPR. The present document tries to answer the question:
how does this secretariat process look like and how the Secretariat would rank the PPR?
The PPRs are sent by the IEs to the EFC through to the secretariat. The Secretariat is in charge to review the substances of the PPR and to interact with the IE, when some addi-tional clarifications are needed, before it forwards its recommendation to the EFC. The findings of the PPR review are determinant for subsequent disbursement tranche of funds for the next implementation phase of projects. This means that the disbursement is strongly linked with the clearance of the PPR.
The Performance Report review by the Secretariat is designed to be simple, transparent and standardised. In undertaking this screen, the secretariat will not only score the report against the AF standard, but also look whether any questions regarding the report do not trigger the flag. There is a flag when a PPR score 0 on any applicable yes/no. In this case, the Secretariat will request the IE further clarifications. Question Sections 2, 3, and 4 – related to financial information, procurement data, and risk assessment17 – are at the cen-tre for such a flag. When the checklist scores 20 or more and no flag has been raised the PPR will be cleared, otherwise the Secretariat will also request further clarifications.
Project that substantiates some shortcoming regarding the performance should provide additional information on how it intends to improve the performance.
3.2.1 Options for a Fundraising Campaign and Strategy
Aware of the increasing declined of CERs price from CDM – from whose share of Pro-ceeds monetization the AF is mainly financed – that hinders the AF to adequately finance urgent adaptation action in vulnerable countries and of the deafening silence of Annex I
16Annual Performance Report
http://www.adaptation-fund.org/sites/default/files/AFB.EFC_.7.4.Rev_.2%20Annual%20Performance%20Report.pdf
17See Project Performance Report (PPR) Review Process: p.6 The financial and procurement data is the only information that provides a check of progress made against dollar amount spent, while the risk assessment section explains measures being taken to ensure the project implementation will remain on track.
http://www.adaptation-fund.org/sites/default/files/AFB.EFC_.9.4%20PPR%20Review%20Process.pdf
countries Parties to the Kyoto protocol to allocate resources into the AF, the AF has initi-ated a Fundraising Campaign Strategy that targets a mobilisation of US$100 million by end of 2013. Along this goal, the AF has made a public call of submission for innovative ways to achieve this goal.
In response to this call six organisations have submitted different views and options on how the AF could mobilise the targeted fund and beyond.
These part summaries both the submissions of the organisations and the proposed options and work plan of the secretariat for further follow-up of the Fund raising strategy.
3.2.2 Proposal of the Nature Conservancy
The Nature Conservancy in its submission has proposed two financial mechanisms:
- The debt for Adaptation Swap18 is a financial mechanism of conversion of debt. It requires and is based on an agreement between the indebted (recipient) and the creditor (donors) countries, in order to finance adaptation action. Accordingly, this option could help to achieve both reducing the external debt for developing countries and creating capitalised endowments by generating funding streams into perpetuity for adaptation to climate change priorities defined by developing country needs. 19 The advantage of this option is that donors can leverage their resources to fund more deeds then giving direct grants while for the debtor countries, this mechanism is an opportunity to reduce foreign currency debt and substitute with local currency.
However the agreement and its implementation is time consuming and requires several expertises of involved parties and stakeholders as well as sound monitoring and evalua-tion framework to implement the opevalua-tion. In addievalua-tion further informaevalua-tion is needed to get better insight of this proposal. T as well as to find the implication of this mechanism for the AF on adaptation project/programme be proposed containing a debt-for-adaptation swap as its internal financial mechanism, especially vis-a-vis the Fund’s mandate to fund only concrete adaptation projects/programmes. 20
- The second financial mechanism proposed is Water Fund. Water Fund is an innovative way to compensate the nature for its service. For this particular mechanism, a part of the capitals paid for the service by water users is invested in a trust fund and interest out of its capital will be used to leverage public and private funds to improve conservation prac-tices of watershed. Accordingly, the AF could invest its resources to existing Water Funds in order to use their structure to leverage its resources.
The AF could invest collaboratively with accredited NIEs its resources to create new water funds, as a kind of local funding that can mobilise funds to finance adaptation in the ground. At this stage, it is relevant to use the mechanism to embed in a pro-ject/programme proposal, rather than becoming a source of new funding for the Fund’s Trust Fund at this stage. By designing this mechanism, it is important to find a way how could the Water Fund matches with the provisions of the AF
18AFB/EFC.9/Inf.1: Options for a Fundraising Campaign and Strategy Institute for Global Environmental Strategies (IGES): Views and Inputs on Options for a Fundraising Strategy and Campaign for the Adaptation Fund p. 3
19 There are different types of potential debt for Adaptation inter alia bilateral swaps, commercial swaps and bilateral swaps funded by third party. See AFB/EFC.9/Inf.1: Options for a Fundraising Campaign and Strategy: Suman Apparusu on behalf of Nature conservancy: Generating new and additional financial flows for adaptation to climate change Submission of The Nature Conservancy to the Adaptation Fund Board and its Secretariat April 30, 2012 p.2
20 Summary of the secretariat AFB/EFC.9/5 Options for a Fundraising Campaign and Strategy
3.2.3 Proposal of Institute for Global Environmental Strategies
The Institute for Global Environmental Strategies (IGES) proposed seven options of financial mechanism to be explored by the AF in it fundraising strategy21. Because of the scope of this briefing paper, one would pick out only three of them, which are in our point of view worth being followed.
Individual donations by using the facility of the Un Foundation and Adaptation certifi-cates: These options have a low level of predictability, because of their reliance to coun-tries politics and charitable environmental aid organisations. It is not complicated as the above mentioned options and the transaction and transfer will be easily since the AF would use the facility of the UN Foundation.
The Adaptation certificates are issued to be bought by the Organisations willing to par-ticipate in the scheme. The transaction of the certificate are recorded in the so called Ad-aptation Fund Registry, which will be published on the AF web site and used by the con-tributors for its public relation and corporate social responsibility strategy.
Regarding this option, the secretariat is of the point of view that is indispensable to gauge the appetite of potential donors. In its consultation with the potential donors, particular highlight should be given on the feature and uniqueness of the AF so as to provide strong argumentations why the donors should allocate money into the AF. In doing so, two pres-entations are planed to reach potential philanthropic organisation in America and Europe.
The outcomes of the meetings, as per recommendation of the Secretariat to the AF, should present to the AFB by no longer than at its first meeting in 2013 in order that it decides the next steps.
Promissory Notes and Bonds: The Adaptation Bond has the potential to exploit market based financing that can generate huge amount of money than individual donations. It also has the potential to enhance formally the pledge by the donors. However, there are some risks bound with promissory notes such as the uncertainty that financial guarantee are not honoured. In addition, it implementation postulates certain institutional arrange-ment.
For the time being the AF Secretariat suggest keeping the option in sight until it is clear how to accommodate the option to the AF. At the same time the AF should keep on in it interaction with potential donors at each international environmental fora.
Disaster Risk Insurance: The funding window for disaster risk insurance by building on existing and on-going initiatives can potentially facilitate PPPs. The experiences showed that without public finance support, it remains quite difficult to attract finance from pri-vate insurance companies to cover high risks embedded in social and economic structures in developing countries.
In addition the option is too vague and it is not clear how it will be applied to the AF.
Also, it needs to be clarify how such a commercial oriented mechanism could fit with the provision of the AF.
21 These options are: 1) Individual donations (UN Foundation); 2) Issuance of Adaptation Certificates, , 3) Promissory notes, 4) Debt for adaptation swaps, 5) Disaster risk insurance, 6) Investment guarantees for adaptation, 7) Adaptation Fund Bonds
3.2.4 Proposal of Perspectives
Perspectives also submitted a proposal titled driving meaningful Adaptation Action through an Adaptation Market Mechanism (AMM). AMM could enable the allocation of adaptation funds through additional enticement of public and private actors. Yet mar-ket has not been used to tap adaptation purposes, although there are several marmar-kets in-struments used to finance for mitigation action. The goal of the suggested Adaptation Market Mechanism (AMM) is to fashion a market that can encourage private and public actors by providing financial enticement. The proposed of AMM includes concept of tradable permits but also of project-based offsets by maximising cost effectiveness of adaptation measures.
However it is questionable how the AF could negotiate adaptation target on international level. Therefore it is essential that the option being discussed within the UNFCCC proc-ess, before the AF could tap its potential.
3.2.5 Proposal of Higher Group Foundation
Higher Group Foundation suggested the concept of Vulnerability Reduction Credits which are set up through a baseline. In order to implement this option it is primarily im-portant to make out a pilot project by undertaking an assessment of baseline and setting guidelines for vulnerabilities. Also trivial is to raise awareness of government and stake-holder involved on the notion of vulnerability so as to incentivise their support for VRC credits.
The option is interesting strategy to sustainably reduce the vulnerability. Its implementa-tion however requires an accommodaimplementa-tion of the Policies and Guidelines of the AF. In addition a framework is needed to supervise, verify monitor and evaluate the mechanism.
This is time consuming and will bring additional cost with.
3.2.6 Conclusion
In term of next steps, the Secretariat suggests the Board requesting it to continue its analysis of debt-for-adaptation swaps, water funds, disaster risk insurance and investment guarantees, taking into account the Fund’s experience on its own portfolio of projects and programmes, and in consultation with the trustee. In addition the Secretariat proposes to organise two workshop for philanthropic organisation as it is above mentioned as well as assist the Chair to organise a follow up meeting on the dialogue.
Without doubt the AF Fund Raising Strategy is a good starting point to secure additional funding for the AF, however, realising the objective of US$ 100 million by the end of 2013 is in deed very challenging, given the current global financial situation. The options presented in the document are all interesting and could more or less be assigned to the AF. In doing so the AF should emphasis its feature and structural uniqueness by demon-strating the comparative advantages to allocate money into the AF. At the same time it should sent a strong signal that it meets the needs of the recipient countries while it en-sures that the money it disburses are well managed and deliver the agreed and expected benefit.